HellerResults

K-12 Textbook Rental: Wild Card Stalking Horse for the Digital Future

Nelson B. Heller, President, EdNET, MDR — Friday, July 29, 2011

In the last two Heller Report columns, we have been looking at the remarkable traction textbook rental has achieved in higher education and its early migration to the K-12 market, predominantly in private and parochial high schools. The big money, if it is to be had, will be in public K-12 institutions, and there are beginning signs of interest. A few states, Indiana in the forefront, have legislated K-12 textbook rental, but Indiana’s funding model, based on a six-year book life cycle, discourages commerce. The same forces that are motivating schools to consider textbook rental are also slowly tilting the instructional materials playing field toward digital and—critical to rental—forcing schools to consider treating materials costs as operating instead of capital expenses. In higher education, digital textbooks are morphing into hybrids of instructional content and student learning workflow support tools. We will eventually see this in K-12. Bookstep, an interesting amalgam of e-textbooks and the rental trend recently surfaced in higher education with the launch of a cloud-based reading, social learning, and publishing application that essentially offers rental of digital instructional materials. Much more explicitly, last week Amazon announced it has begun renting Kindle versions of textbooks through its Kindle Store. Read on to see if you agree that the textbook rental phenomenon is indeed a stalking horse for the digital future.

Good and Bad News in Indiana: Universal K-12 Book Rental, But Funding Model Discourages Commerce

John Lopez of NASTA pointed me to Indiana as one of three states where parents are asked to pay for textbooks, setting up a financial dynamic similar to that for postsecondary materials. Most districts in Illinois require parents to pay something toward book costs. (Lopez could not identify the other one, nor could I for sure, but it is probably Ohio.) Indiana schools front the book purchases and rent them to students. By law the cost is amortized over six years. For the rentals, they are allowed to charge 25% of the new material cost each year. While the arithmetic says schools will be recovering 150% of their investment, they usually lose money due to lost books, parents who do not pay, and under-utilization of the inventory. Consumables, like workbooks, are passed on at full cost. Parents learn the prices of students’ books and consumables by grade level on the first day of the school year, but at 25% of retail, the numbers make it unlikely that commercial rental firms would want to be in the market.

Dr. John Keller, Director of Learning Technologies at the Indiana Department of Education, explained that to deal with families that cannot afford the tab, a pot of money is set aside annually by the state legislature to pay for materials for kids on free/reduced lunch, who currently represent about 45% of the student population. The related fund currently totals $39 million. To get their share, schools must show their actual costs and ask for reimbursement. Consequently, the subsidy per student is not the same from school to school. The state pays in the spring. New legislation, House Bill 1001, passed in April and just signed by the governor, changes the distribution to equal shares of the state fund per eligible student. This year it would have been about $80/student. The Bill says schools can charge parents what they want for books, but the reimbursement per eligible student is fixed. Local school budgets have to make up the difference between reimbursed and actual costs. This funding mechanism forces schools to allocate materials resources across subjects to make ends meet. For example, science courses have high materials costs, for kits and labs, while social studies materials costs are low. If $25/student is needed for science, then $80 minus $25, or $55, has to cover all other materials for the grade. Other decisions are impacted, for example, whether to refinish the gym floor less frequently to generate enough money for curricular materials.

A Chicago Tribune story from August of last year illustrates the book purchase and rental situation in Illinois. “With the state in fiscal crisis, the Illinois State Board of Education for the second year has eliminated more than $40 million in funding used to defray textbook costs—or about $40 per student. Now, districts are passing along that cost to families in a variety of ways: Some schools that rent books to students are hiking the fees. Those that require students to buy books will be passing out fewer free ones. And even private schools are taking a hit because the money also was available to them … Textbooks are considered an academic staple and are typically free elsewhere in the country. Only about 15% of school districts nationwide collected money from families for textbook rentals or purchases in 2008, according to the most recent federal data. That year, districts across the country collected $201.5 million, with Illinois collecting the most—$96.8 million. Only six states, mostly in the Midwest, collected more than $10 per student for textbooks. Nearly all districts across Illinois require families to pay for books, with parents in the Chicago area generally paying more than downstate parents. Courts here have upheld book fees, based on case law that interprets a free education as a school building and teachers—not books and other supplies. By requiring parents to pay for books, districts do not have to pass along the cost to all taxpayers.”

A Playing Field Tilting More Toward Digital

A recent Indiana social studies adoption competition led the State Board of Education to grant everyone a waiver from buying books from the state adoption list. In fact “book” is now defined as systematically organized content, so funding can be applied to software and web-based materials as well as to computers. The Board wants to get out of the business of state textbook adoptions. Rather than creating adoption lists, it is now publishing online reviews of submitted packages, assessing factors such as alignment to standards, and giving each an overall rubric-based score. The new legislation allows schools to pivot toward more digitally delivered curriculum. From Keller’s perspective, there is pent-up disappointment with textbooks but no clear pattern of what to substitute for them. The resulting confusion is often moving schools to buy hardware.

“In this evolving context, the use by schools of a mixed model of student-owned hardware and computer rental,” he said, “is looking more likely going forward, allowing schools to fund the most needy students’ gear.” Parents seem favorably disposed because the hardware, when not being for schoolwork, is available for non-educational uses and for other members of the family. “If you look at Apple’s ‘ongoing refresh’ hardware packages, with their five-year terms and buyback, which cost schools 25% of the purchase price for four years with the fifth free,” said Keller, “you are right in the ballpark for state materials reimbursement.” Summarizing his assessment of where we are in moving to widespread use of digital materials, he said, “Characterizing schools’ purchase of hardware in the absence of a clear direction on digital curriculum may not quite tell the entire story. I still maintain that a clear set of strategies for moving to digital curriculum has not emerged. However, I do think schools that are investing in hardware and using their instructional materials funds to do so are recognizing the fact that without a reliable networked device in the hands of each student, they will not have a digital content strategy at all.” Contrasting K-12 with postsecondary, he added, “In K-12 the economics of the shift to digital curriculum necessarily includes both the devices and the content, where in higher education the economics presume a consumer grade device in the hands of all students with the institutional focus more on the economics of content delivery.”

Bookstep, the interesting amalgam of e-textbooks and the rental trend mentioned above, surfaced in January in higher education with the launch of a cloud-based reading, social learning, and publishing application that, among its suite of resources, essentially offers rental of digital instructional materials. I met one of its executives, John Purcell, at the SIIA ETBF in New York in November. According to Purcell and the firm’s website, Bookstep’s goal is to “quickly becoming the world’s leading digital textbook delivery platform utilizing an innovative model that promises greater returns to publishers and lower costs per book for students.” It is Purcell’s latest entrepreneurial venture, having recently sold another one, CafeScribe, to Follett Software.

In a clear indication that big players are sensing opportunity here too, last week, according to Campus Technology, Amazon jumped into the digital textbook rental arena with an announcement that it is now renting textbooks for the 2011 school year through its Kindle Store. It is “using a model that lets students decide how long they will rent the book for—and on which platform they will use it. Through the new service, students will be able to rent textbooks for periods ranging from a month to nearly a year. Textbook rentals are handled through the free Kindle reader app, which is available for smartphones, tablets, and traditional computers, along with Kindle devices. According to Amazon, students will pay only for the time they are renting the book, and they can extend their rental period by as little as one day with an unlimited number of extensions. They can also opt to purchase a textbook they are renting. Amazon estimated that rentals can save as much as 80% off the list price for a print edition.” While much of their digital textbook inventory is for postsecondary use, it did not take me long to find at least one suitable for high school use.

Charles Schmidt, Director of Public Relations for National Association of College Stores (NACS), commenting on what he is seeing in higher education,told me, “People say rental is a bridge to eBooks. We want to be on top of that because eBooks are often sold directly to students, disinter mediating the bookstore.” His research indicates e-texts typically cost 50% to 60% of the new print book, offer no rebate from resale afterwards, and in some instances, the student might not be able to keep it. eBook readers are another hindrance, mainly, so far, displaying black and white and not color. “eReaders are great for recreational reading but not for studying. Research I have seen indicates 70% of students said they would rather have print versus eBooks.”

When asked what will make eBooks take off in postsecondary, he said, “They now account for only 3% to 4% of sales but that could be 15% to 20% by fall 2012 if professors get more comfortable with e-media and readers. Content has to be more interactive and offer more functionality to facilitate studying.”

Speakers from Cengage, Bridgepoint Education, and Inkling at the recent SIIA Ed Tech Industry Summit sounded a similar theme in a session on “eTextbooks and Digital Content.” The eBook of the future, they said, will be more about workflow, supporting student learning way beyond the print version’s content, with a host of interactive resources and services more cognizant of practice, simulation, assessment preparation and assessment, tools, and maybe even tutoring.

Chegg, one of the bigger postsecondary textbook rental companies, has a related vision, touted in a recent press release, “Chegg Expands Beyond Textbook Rental Industry; New Services Include Class Scheduling and Homework Help …New Set of Digital Solutions for Students.” Their goal is to provide “more services to help students succeed in school… with personalized educational tools to help students save time, money, and get smarter.”

At their website, students can now access information about their classes and professors, making it easier to pick the right classes as well as step-by-step explanations to textbook and homework help. Hammering home the vision, the release says, “The site design is the first of its kind to offer students a more comprehensive and multifaceted way of learning and organizing their academic life.”

What K-12 Rental Says About Tomorrow

For now, there are more questions than answers about K-12 textbook rental and the future of instructional materials. Having reviewed a draft of this article, Larry Nelson, Worldwide Managing Director – Primary/Secondary Education, Microsoft Corporation, outlined a few:

Chegg’s increased services are interesting to note. Do the textbook publishers or SIS players see them as a valid threat?

What are the LMS providers doing relative to these trends? Is this happening without them, or are they demonstrating any strategic activity that would suggest they are winning or losing in this transformation?

Will OER play a role in this…or is the OER movement—as well as other independent software vendor activities, such as vendors’ online teacher communities, or content repositories—not a major factor in transformation?

Regardless of the answers, it is not too much of a stretch to see the surge in book rental in the postsecondary market, now flirting with K-12, as giving a hint of how much of tomorrow’s K-12 instructional materials will be digital. Start with the growing aversion to the cost of new print textbooks, which, in postsecondary, has created a brisk trade in used and rental books. Throw in faculty and student desire to buy just the parts of learning products which they want and the recognition of the need for differentiated instruction in K-12. New developments are impacting the lack of student terminals too, with more schools testing the use of student-owned devices and the cost of suitable gadgets continually dropping. Add in growing pushback among state funding agencies for standard textbook adoptions and for subsidizing their purchase. Consider the multiple pain points of school administrators dealing with having to manage distribution, sale or rental of instructional materials. And, finally, look at what happens to ownership risk for textbooks when they become digital. Web-delivered and sold as a service, there will be no selling it back when the course or year is over. Today’s rental is incenting schools to adopt new ways of treating book costs as multiyear operating expenses. Lastly, let us not discount the disruptive impact of book rental versus the traditional purchase of print. Anything that shakes up the system helps open doors to alternatives to the book cycle. If that is not enough, think it over some more while you are playing with your Android, iPhone, or Windows 7 phone or tablet.

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